A 12-member federal jury in San Francisco has convicted Block Bits Capital founder Japheth Dillman on five federal counts including four counts of wire fraud and one count of conspiracy. The unanimous verdict came after roughly six hours of deliberations spread across two days before U.S. District Judge Richard Seeborg in the Northern District of California. Dillman remains free on bond and is scheduled to be sentenced on December 8 at 9:30 a.m. The charges cover wire fraud under 18 U.S.C. § 1343 and conspiracy to commit wire fraud under 18 U.S.C. § 1349. Each wire fraud count carries a statutory maximum of 20 years in prison and fines of up to $250,000, though the final sentence will depend on the definitive loss calculation and court's application of federal sentencing guidelines.
Dillman and his partner, David Mata, promoted the investment vehicle Block Bits Fund I, claiming they had proprietary software capable of trading 100 digital assets across more than 30 exchange platforms. According to the Justice Department, prosecutors determined that the bot was never developed or deployed. Filings presented by the U.S. Securities and Exchange Commission (SEC) revealed that the actual trading consisted of manual orders placed by Mata on a single exchange account. Despite the absence of any automated software, Dillman reported positive monthly returns to clients for June and July 2017. The scheme also involved false claims regarding asset custody, with promoters telling investors that roughly 40% of the capital was secured in low-risk cold storage, while judicial investigations confirmed the money was diverted to unsecured loans and the AML Bitcoin initial coin offering (ICO).
Prosecutors told the jury that investor funds were used for purposes other than the strategy that had been marketed. Dillman and his co-conspirator paid themselves and placed money into speculative cryptocurrency ventures without fully disclosing the risks to investors, the DOJ said. Several of those positions produced substantial losses, according to trial evidence. Even as the investments lost money, Dillman falsely told investors that Block Bits' cryptocurrency trading operations were generating significant profits, prosecutors said. The U.S. Securities and Exchange Commission had separately charged Block Bits Capital, Block Bits Capital GP I, Dillman and co-founder David Mata in April 2022 over an alleged fraudulent and unregistered securities offering.
The parallel civil enforcement action brought by the SEC against Dillman and Block Bits entities remains active, with the financial regulator continuing to seek disgorgement of profits, civil monetary penalties, and officer-and-director bars. The firm raised approximately $960,000 from 22 investors between June 2017 and August 2018 under the promise of a non-existent automated bot. Direct investor losses amount to roughly $508,000, according to criminal complaint filings and SEC records. Federal agencies involved in the case included the FBI and IRS Criminal Investigation, while the SEC's San Francisco Regional Office provided assistance. Assistant U.S. Attorneys Christiaan Highsmith and Charles Bisesto are prosecuting the case. The SEC's civil enforcement case against Dillman and the Block Bits entities remains alive, with regulators pursuing injunctions, disgorgement, financial penalties and restrictions on participating in future securities offerings.
